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Does product complexity matter for firms' output volatility?

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  • Maggioni, Daniela
  • Lo Turco, Alessia
  • Gallegati, Mauro

Abstract

With this paper we provide the first micro-level evidence on the linkage between firm complexity and volatility. By defining product complexity à la Hausmann and Hidalgo (2009), we find that a higher complexity level of a firm's product basket is associated to a reduction of its output fluctuations. This evidence is robust to the control for omitted variables, sample selection, and to the use of alternative volatility and complexity indicators. Across similar firms, active in different sectors and regions, both technological factors and product market conditions explain the effect of complexity on volatility. However, within narrowly defined sectors and locations, the complexity–volatility nexus fully reflects the role of the human capital content of firms' product baskets.

Suggested Citation

  • Maggioni, Daniela & Lo Turco, Alessia & Gallegati, Mauro, 2016. "Does product complexity matter for firms' output volatility?," Journal of Development Economics, Elsevier, vol. 121(C), pages 94-109.
    • Handle: RePEc:eee:deveco:v:121:y:2016:i:c:p:94-109
    DOI: 10.1016/j.jdeveco.2016.03.006
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    JEL classification:

    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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